What's the Current Situation Regarding Mortgage Rates?

You may have heard mortgage rates are going to stay a bit higher for longer than originally expected. And if you’re wondering why, the answer lies in the latest economic data. Here’s a quick overview of what’s happening with mortgage rates and what experts say is ahead. Economic Factors That Impact Mortgage Rates When it comes to mortgage rates, things like the job market, the pace of inflation, consumer spending, geopolitical uncertainty, and more all have an impact. Another factor at play is the Federal Reserve (the Fed) and its decisions on monetary policy. And that’s what you may be hearing a lot about right now. Here’s why. The Fed decided to start raising the Federal Funds Rate to try to slow down the economy (and inflation) in early 2022. That rate impacts how much it costs banks to borrow money from each other. It doesn't determine mortgage rates, but mortgage rates do respond when this happens. And that’s when mortgage rates started to really climb. And while there’s been a ton of headway seeing inflation come down since then, it still isn’t back to where the Fed wants it to be (2%). The graph below shows inflation since the spike in early 2022, and where we are now compared to their target rate:   As the graph shows, we’re much closer to their goal of 2% inflation than we were in 2022 – but we’re not there yet. It's even inched up a hair over the last 3 months – and that’s having an impact on the Fed’s plans. As Sam Khater, Chief Economist at Freddie Mac, explains: “Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.” Basically, long story short, inflation and its impact on the broader economy are going to be key moving forward. As Greg McBride, Chief Financial Analyst at Bankrate, says: “It’s the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation — that’s really the hub on the wheel.” When Will Mortgage Rates Come Down? Based on current market data, experts think inflation will be more under control and we still may see the Fed lower the Federal Funds Rate this year. It’ll just be later than originally expected. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), said in response to the Federal Open Market Committee (FOMC) decision yesterday: “The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.” In the simplest sense, what this says is that mortgage rates should still come down later this year. But timing can shift as new employment and economic data come in, geopolitical uncertainty remains, and more. This is one of the reasons it’s usually not a good strategy to try to time the market. An article in Bankrate gives buyers this advice: “ . . . trying to time the market is generally a bad idea. If buying a house is the right move for you now, don’t stress about trends or economic outlooks.” Bottom Line If you have questions about what’s happening in the housing market and what that means for you, let’s connect.

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National Report: Pending Home Sales Increased by 3.4% in March

In March, pending home sales surged by 3.4%, as reported by the National Association of REALTORS®. While the Northeast, South, and West experienced upticks in monthly transactions, the Midwest saw a decline. Comparing year-over-year figures, the Northeast and South saw decreases, whereas the Midwest and West showed improvements. The Pending Home Sales Index (PHSI), which gauges future home sales based on contract signings, rose to 78.2 in March, with a slight 0.1% increase compared to the previous year. This index uses 2001 as a baseline, with 100 representing the level of contract activity at that time. "While March's Pending Home Sales Index of 78.2 marks the strongest performance in a year, it still remains relatively stable over the past 12 months," noted NAR Chief Economist Lawrence Yun. "Significant growth hinges on declining mortgage rates and an increase in housing inventory." Looking ahead, NAR projects a 9% increase in existing-home sales for 2024, reaching 4.46 million units, followed by a 13.2% surge in 2025 to 5.05 million units. Housing starts are also expected to rise by 1.2% in 2024 and 4.9% in 2025. Yun pointed out, "With home sales stagnant at 30-year lows and a considerable increase in the U.S. population since then, it's foreseeable that sales will pick up in the coming years." He attributed this to a combination of increased construction activity and life changes prompting people to move. Median home prices are forecasted to rise by 1.8% in 2024 to $396,800 and another 1.8% in 2025 to $403,800. However, the median price for new homes is anticipated to decrease by 0.6% in 2024 before rebounding by 3.4% in 2025. Yun emphasized that home price growth is expected to align with inflation and wage increases. He noted the resilience of current homeowners' financial positions, with distressed sales making up only 2% of transactions. NAR anticipates a steady improvement in home sales alongside record-high prices. "Job growth, stable mortgage rates, and increased inventory will drive sales," Yun said, acknowledging the ongoing housing shortage and its impact on prices. Breaking down the regional data, the Northeast saw a 2.7% increase in its PHSI, while the Midwest experienced a 4.3% decline. The South and West regions showed improvements of 7.0% and 6.8%, respectively. Yun cautioned that rapid home price growth relative to income poses challenges for first-time buyers. However, he expressed optimism about inventory growth due to recent increases in home construction and the anticipated listing of homes by sellers who postponed selling in recent years. The Pending Home Sales Index serves as a leading indicator for the housing market, reflecting pending sales of existing homes. While pending contracts offer early insights into future sales, completion timelines can vary due to factors like financing issues or home inspections.

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The Truth About Realtor Commissions Going Forward

In the proposed settlement, various forms of compensation for brokers assisting buyers would persist, such as fixed-fee commissions paid directly by consumers, seller concessions (provided they aren't tied to retaining or compensating specific parties), or a share of the listing broker’s compensation. NAR has consistently advocated for offering compensation in the interest of all parties involved, though using the MLS to convey compensation offers will no longer be feasible. Negotiating compensation will remain flexible and should be discussed directly between agents and their clients.   Regarding changes in business practices, the settlement entails two significant shifts:   NAR has agreed to implement a new MLS rule prohibiting the communication of compensation offers through the MLS. However, consumers can still explore compensation options outside the MLS through negotiation with real estate professionals. NAR has also committed to establishing a new rule requiring MLS participants working with buyers to establish written agreements with their buyers before touring a home. NAR has long promoted the use of written agreements to ensure clarity regarding the services provided and their associated costs.   Bottom Line Don't expect to absolutely pay nothing to a buyer's agent as a seller in the future. You have that option though. But this is a common practice in commercial real estate and most landlords provide buyer agent compensation. They do this because they understand the transaction and how that fee benefits them when selling or leasing their property.

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